The introduction of the Business Responsibility and Sustainability Reporting (BRSR) by Securities and Exchange Board of India (SEBI) aims to establish links between a business’s financial results along with Environmental, Social and Governance performance. This shift holds companies accountable for identification of ESG responsibilities in its annual disclosures. The mandate has been brought into account to promote good governance and accelerate sustainability shifts in the market, while holding the stakeholders responsible for long-term value creation for both people and the planet.
SEBI has mandated that the BRSR will be applicable to the top 1,000 listed entities (by market capitalization) for reporting on a voluntary basis for FY 2021–22 and on a mandatory basis from FY 2022–23.
It is crucial that Companies look at reporting from not just a legal and compliance standpoint but also as a Business advantage that can help companies with the following :
Better Access to Capital
The relevance of ESG has been accelerated by investors seeking adoption of the Paris Agreement and other initiatives to combat Climate Change. A growing number of institutional investors ( also involved with International agencies such as Global Reporting Initiative, CDP to advise on frame working of reporting standards ), are looking to use these data points and ESG Criterias to screen potential investments. They can come on board as Impact investors to not just bring in their expertise but also invest capital.
In its fifth biennial report by Global Sustainable Investment Alliance (GSIA), it was stated that Environmental, social, and governance (ESG) integration emerged as the largest sustainable investment strategy by a market share of 43% in 2020 . India is also set to soon gather momentum and play a huge role in the growth of ESG Funds.
Ensuring Talent Retention
Employees form the basis of any company, with an increasing number of individuals wanting to be placed at companies with social consciousness, inclusion rights and policies to ensure safer working standards, companies have started adopting such regulations to attract and retain talent. Thereby disclosing these initiatives and creating a sense of positive-imagery associated with the company in the minds of consumers would be beneficial.
Bigger Market share
Some global studies show that companies that embed ESG into core business practices outperform their peers. This is also true for India, where, over a 12-year period, the MSCI India ESG leaders index consistently outperformed the broader market as represented by MSCI India IMI index. The difference in the outperformance has also increased.
The concept of materiality has helped companies identify risks and opportunities to make their business more sustainable long-term. This helps to look at broader market-opportunities and acquire new customers.
The reporting structure can be majorly divided into 3 sections that cover the following :
Section A : General Disclosures
The objective is to obtain basic information such as the company size, location, operations, number of employees, CSR activities.
Section B : Management and Process
This mainly focuses on leadership, governance and stakeholder engagement. The purpose of this section is to understand if the company has structures in place to account for responsible, transparent conduct of business.
Section C – Principle-wise performance
This section requires companies to measure and report on Key performance Indicators (KPIs) that can either be Essential (Mandatory for all companies) and include number of training programmes conducted, Environmental data on energy, GHG Emissions, Social impact etc. Or be categorized as Leadership (Voluntary and covers more in-depth data). This would include information on Lifecycle assessments, Scope 3 emissions, Impact on Biodiversity, Policies on Conflict Management to name a few.
Even though uniformity in terms of data collected and reports may not happen across varied industries, for example a Chemical company may have effluents, thereby shifting policies focusing on waste management whereas a food company may choose to focus on greener procurement and sustainability of resources, the above mentioned structures would help categorize and enable transparency and effective communication.
What will this mandate mean?
Writers take :
Overall the mandate has been a crucial and long overdue step to be more inclusive and promote accountability among companies. This would also provide public market investors more purposeful and authentic data. We are still looking for polluters to start taking action for their pollution and bear the costs of managing it to prevent damage to human health or the environment (Polluter Pays Principle). Though reporting is just the beginning and the mandate is expected to be extended to medium and smaller-sized companies in the near future, implementation would be something that defines the state of humans trying to tackle climate change and prevent catastrophe.
About the author
Muskan Agarwal | Muskan has always been passionate about working towards saving the environment since a very young age. She has her background in food science and was also working towards food sustainability. She believes in giving back to our environment and wants to work towards fighting climate change, and co-founded Livabl that helps companies individuals and companies take climate action.